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Health Insurance Deduction When You're Self-Employed

Marc Chaput
Health in Canada

Updated 2019 March  Canada is famous for its universal health care system. Yet, it doesn't cover everything related to your health. Employers often provide private insurance as an incentive. The self-employed often pay for these services out of their own pocket.  Here's how you can claim a health insurance deduction.

What's covered in the health insurance deduction?

The universal health care system covers many services. These services must aim to treat, diagnose and prevent illness and injury. It also includes services that maintain health.  But certain services are not covered by universal health care in Canada. These include vision care, dental care, certain mental health services, and prescription drugs. Many employers offer private health insurance plans to cover a portion of these costs.  The self-employed likely pay for these services on their own. This can add up quickly. Thankfully, the CRA lets you claim some of these costs for tax relief.

How to claim the medical expenses tax credit

If you don't have private health insurance, you can pay for a variety of medical costs up front. You can then claim the medical expenses tax credit. Some of the services eligible for this credit include:

  • Dental services (this includes exams, cleaning, surgery, prostheses, and orthodontics)
  • Laser eye surgery
  • Crutches
  • Therapy
  • Prescription drugs.

Consult the CRA's list of common medical expenses. This list also mentions whether or not you need a prescription to claim each expense. Examples of expenses that are not covered include:

  • Gym memberships and fitness club fees
  • Non-prescription birth control
  • Cosmetic surgery
  • Vitamins and other non-prescription medications.

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Make sure to keep all receipts and prescriptions to support your claims. In some cases, you may also need to keep certification in writing by a medical practitioner or fill out form T2201. Check with the CRA to find out what you need to provide.

Register for a private health insurance plan

If you're self-employed, you can still register for a private health insurance plan. You'll likely have to pay a monthly premium for these health insurance plans.  There are many reasons to consider a private insurance plan. Even if you're young and healthy, having insurance now will help to guarantee your insurability over the long term. Your insurance premium payments are also tax deductible.  You can deduct your private health insurance premiums if at least 90 percent of the premiums paid are for eligible medical expenses. This means that travel insurance and life insurance can only make up 10 percent of your plan. Otherwise, your private health insurance will not be considered as an eligible medical expense.  To claim the medical expense credit, simply input your private health insurance premiums as a medical expense on your federal tax return. It's that easy.

Get private health insurance through your spouse or common-law partner

Does your spouse or common-law partner have private health insurance through an employer? You might be eligible for health insurance under their plan.  This is a great way to get private health insurance. Yet, you won't be able to claim your premiums on your personal income tax return. These amounts are applied to your spouse's income tax return.

How to claim the medical expense deduction

To claim eligible medical expenses for you or your spouse or common-law partner, turn to line 330 of Schedule 1 on your Federal Tax return. You can claim eligible medical expenses for your dependents on line 331.  Here's how to calculate your medical expense deduction:

  • On line 330, enter the total amount you spent on eligible medical expenses for the taxation year (A)
  • Depending on which number is lower, enter either 3 percent of your net income, or $2,302 on the line below (B)
  • Subtract B from A to get the total amount of your deduction.

If your net income is $40K, 3 percent would be $1,200. If you spent $3,000 on eligible medical expenses for the year, you would be able to deduct $1,800 of your eligible medical expenses. This portion of your income would essentially be tax-free.  Even though Canada's universal health care guarantees free basic care for all Canadians, it doesn't cover everything. If you spend any money at all on eligible medical expenses, claiming the health insurance deduction is really worth it!  Make sure to scan copies of all of your receipts and prescriptions. Keep them in a marked folder on your computer's desktop. Too many people omit certain expenses from their taxes because they are disorganized. Don't make the same mistake as them!

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